Ramesh Kumar, a senior engineer with a multinational firm is looking for investment options that could offer tax relief along with returns linked to equity.
Sudeshna Gupta, a media planner with an advertising agency is considering equity schemes as an investment option and needs tax planning for availing benefits u/s 80 C.
In both the cases, Equity linked saving schemes (popularly known as ELSS) is the ideal option.
What is ELSS?
Key Features
Equity linked savings schemes (ELSS) are equity-oriented mutual fund schemes with an added advantage of tax benefits under various sections of the Income Tax Act
Type of Scheme : Equity-oriented Scheme
Asset Allocation: 80-100% equities
Scheme Objective: Capital Appreciation
Type of Scheme : Equity-oriented Scheme
Redemption of units is permitted after three years from the date of allotment of units
Investments up to Rs. 1 lakh in ELSS funds are eligible as deduction from taxable income u/s 80 C
A major advantage of ELSS over other tax-saving instruments like PPF/NSC/Bank Deposits etc is the shorter lock-in period with the potential for higher returns.
How can you start investing in ELSS?
Tax Benefits
Investments in ELSS can be as a lump sum investment or through a Systematic Investment Plan (SIP), depending on your income flow.
Investment up to a maximum of Rs. 1 lakh eligible as deduction from taxable income u/s 80 C
Capital gains on redemption are tax-free u/s 10(38)
Dividends are tax-free u/s 10(35)
SIPs in ELSS schemes offer the opportunity to stagger your 80 C investments throughout the financial year, reduce the TDS burden and include benefits of rupee-cost-averaging.
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